Mutual funds shift preference to HDFC Bank despite stock underperformance

HDFC Bank's stock has declined 27% in 2026, outpacing ICICI Bank's modest 1.6% gain. Yet mutual funds have reversed course, increasingly adding to HDFC Bank holdings while trimming ICICI Bank positions.

By August-end, ICICI Bank remained the larger mutual-fund holding overall. However, recent fund flows suggest a notable shift in investor preference as asset managers reassess HDFC Bank's valuation and medium-term recovery potential relative to its larger peer.

The divergence reflects mutual fund managers' confidence in HDFC Bank's fundamentals despite near-term stock weakness.